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"We're taking the shine off," says new Fonterra chairman John Monaghan on the way to his office, apparently the only one in the dairy company's very shiny headquarters on Auckland's Fanshawe St.

Everyone else – including new chief executive Miles Hurrell - free ranges on the open floors, and Monaghan, in jeans because it's Friday, was heading for a meeting space among them until the Herald asked for a tape recorder-friendly talking spot.

Maybe Monaghan was thinking there was safety in numbers. Or maybe giving his office a swerve was in the spirit of the promised new culture of glasnost at New Zealand's biggest but under-the-weather company.

"I am very respectful of the past but I use words like breathing fresh air into the co-op, so we will be subtly different. But that will be really demonstrated by actions and I think you will see that culture right across the business and you'll see it in our key management and how they engage."

To understand why shareholders, investors, the public and politicians lately feel entitled to scorn the world's biggest dairy exporter, and why Monaghan and his board feel the need to set a new course, some background may help.

Fonterra chairman John Monaghan, left, alongside chief executive Miles Hurrell at the Fonterra offices on Fanshawe St. Photo/File

The farmer-owned co-operative was created in 2001 from a huge industry merger via special enabling legislation which allowed it to bypass Commerce Commission approval.

Its dairy leader architects pitched it to be a national champion in global markets, achieving annual revenue of $30b in 10 years.

Eighteen years on it is still the gorilla of the raw milk market, collecting 80 per cent of all milk, but annual revenue is barely nudging $20b, much-hyped and costly value-add business strategies have largely failed to fire and wealth destruction from overseas investments has plunged its 10,000 farmer-shareholders into a crisis of confidence.

In the 2018 financial year more than $1.5 billion was written off their balance sheets, the effect of a 27.6 per cent fall in the share price and a constrained dividend.

It was the sixth consecutive year the listed Fonterra Shareholder Fund had underperformed in the NZX market. The share price started the year at $6.08 and finished it at $5.12.

Since late 2012 when dividend-carrying, non-voting units in Fonterra farmer shares were listed, the co-operative's market value has declined from $10.3 billion to $7.5b, ensuring unit holders are grumpy too.

Stir in big management salaries – former chief executive Theo Spierings took home $8m in 2017 - stiff prices at the supermarket dairy chiller and public antagonism over dairying's impact on the environment, and Fonterra is feeling very unloved right now.

Spierings exited in August, followed closely by chairman John Wilson, for health reasons.

Enter Eketahuna dairy farmer John Monaghan (Fonterra's chairman must be a farmer-shareholder), today Fonterra's most experienced director with 10 years at the top table, and Miles Hurrell, a long-time Kiwi employee as interim chief executive (and, according to Monaghan, paid "substantially less" than Spierings).

Prominent market commentator Brian Gaynor said it if it wasn't for the "positive" change of leadership giving the "perennial disappointment" Fonterra Shareholder Fund the benefit of the doubt, it would have easily won his vote for worst performer of 2018.

With Fonterra under fire from all sides, the new leaders swiftly promised a thorough review of the company's strategic direction, assets, partnerships and joint ventures, and a "back to basics" style of doing business.

Four months on, how are they doing?

Monaghan says Hurrell is "smashing through some of the bureaucracy which is welcome".

A decision on the permanency of Hurrell's job can be expected very soon, he says.

Consultants are not being used in the review.

"That's quite a cultural change," says Monaghan, acknowledging the Herald's suggestion that as a long-time director he is part of Fonterra's problems.

"I've heard that before. But I look at it that I'm very much part of the past and part of the future. That's why it's important that the past is given context and it's typical of New Zealand that the pendulum lurches too far one way with criticism.

"We've been very transparent about reducing our debt by $800m, reducing our capex from $850m to $650m and getting our gearing ratio back into policy (between 40 and 45 per cent) and probably at the conservative end of that policy.

"We've committed to do that by the end of the 2019 calendar year, when hopefully it's done and if not it should be well-planned and under way."

He says the board, which has three new farmer directors this year, will meet late this month for a two-day strategy decision and will start making decisions on the results of the internal portfolio analysis soon.

That Fonterra is considering asset sales to relieve the pressure on its balance sheet instead of milk price payout retentions has been criticised by some shareholders, and the public didn't like news the iconic Tip Top icecream business could go on the block.

Noting Tip Top actually only returned from Australian ownership in 2001, Monaghan says the public upset was expected but emotion has no place in the decisions ahead.

"I'm very serious, there are no sacred cows. We'll have more announcements in the first half or first quarter of (2019) but work is well under way."

Monaghan wants to move away from Fonterra's reputation for gloss and spin. Photo/File

Interestingly, when asked why Fonterra doesn't stick to what it is very good at which is manufacturing and exporting high quality ingredient commodities instead of chasing value-add consumer business for which it doesn't have the capital, Monaghan says the back to basics review means "you might want to go a lot harder in food service and ingredients".

He won't say if he as a director supported Fonterra's disastrous $750m investment in Chinese child nutrition company Beingmate, on which it has lost $439m so far.

The 18 per cent stake must be one of the least sacred cows in the current review along with the company's big investment in its consistently loss-making China dairy farms.

Were the farms a mistake?

"No, there is debate around the size and scale of the investment. There's always been an intention at some point to sell down some of the investment, and the main prize is to get further use for the milk downstream, get it into Starbucks, McDonald's, Alibaba etc," says Monaghan.

With Chilean processing business Prolesur losing suppliers, Fonterra's South American operations including Soprole will also be under close scrutiny.

"You can take it there's not an asset we are not looking at. We have nearly $2 billion of capital in Australia – we have quality choices around the globe."

But the joint China farming venture with US pharmaceutical company Abbott will not be for sale.

Monaghan acknowledges some overseas investments have been "disappointing". But he doesn't agree with claims Fonterra doesn't have the capability and skill to pick winners.

"I get the focus on our problem child Beingmate but I'd like another sentence on the end of that for context – that we've built a $4 billion revenue business in China in a timeframe no-one else has and we wouldn't have seen the milk prices (to farmers) we have if not for that."

Monaghan says next job for the board after the portfolio analysis will be to look at what capital is required.

"We have started a discussion about flexibility and setting the co-op up for the future. We will have the discussion with our farmer-shareholders in the first instance about what capital requirements are and what structural changes are needed.

"We are not talking about in three or four years, we are talking about this discussion taking place in the next 12 months to provide the (market) clarity you quite rightly challenge me on."

But a debate about Fonterra's capital structure is not on the horizon, he says.

"Two things are always on the co-op's agenda – evolving governance and capital structure but to be quite clear we are not going into a capital structure debate next year.

"We just don't need that distraction at the moment."

Fonterra's hybrid capital structure is an oddball.

Only farmers can own and control shares, but market punters can invest in listed dividend-carrying, non-voting units in those shares.

Market commentators say the structure creates tension between investor classes with Fonterra constitutionally bound to pay the highest milk price possible to its farmer-owners, but also expected to deliver robust dividends.

In short, Fonterra's identity and purpose has become confused, which has contributed to its failure to be our national champion.

Its recent financial performances have sparked calls for the company to be broken up into a farmer co-operative and a separate listed company which could pursue outside capital to fund high-value product business.

The concept was mooted by Fonterra leaders about 10 years ago but shot down by farmer-shareholders. The compromise was the hybrid structure called Trading Among Farmers (TAF) in 2012.

But one issue Monaghan does want to see debated soon is the Fonterra director election process.

Another controversial oddball, it sees aspiring farmer-directors, who dominate the board, nominated for election by either the board or by a group of backing farmers. All nominees can opt to go before Fonterra's "independent selection panel".

A shareholder backlash in elections late last year saw one sitting board-recommended director voted off and three new farmer directors voted in – two of whom notably were nominated by farmers and chose to bypass the panel.

Clearly smarting from that outcome, Monaghan wants a review begun in the new year.

"The only way the owners can represent their disappointment is at the ballot box……(but) one thing we don't want is people coming on to the board on what I call a single issue of the day. We are a global business, not a place to arrive on training wheels."

In the next breath he says: "Our board is new, it hasn't got the depth of governance experience maybe, but it has got a lot of capability and there is no-one on there who is not contributing."

Past chairmen of Fonterra have been accused of meddling in daily management – having "their hands in the gearbox", as critics put it.

Monaghan says that won't be his style.

"We've had some strong personalities. I don't want to speak about the past but what I can say is ….we have refined our governance agenda."

The board will meet less this year, a number of work groups have been axed and sub-committees refined to put a strong focus on issues affecting profitability, he says.

"It's very important to me that I have management speaking for the business. I believe in utilising bench strength and I believe you'll see that demonstrated.

"I look where the share price is for our farmer-owners and unit holders and I'm very aware of the effect of the lower share price on their investments. We are very focused on doing something about that… and with some urgency."

Meanwhile, Monaghan's not short of advice from those "strong personalities".

"I get a lot of advice from ex-leaders, there are a lot of big personalities around the dairy industry.

"But I'm very much my own man and with respect, the leaders from yesterday won't give us the answers to today's and tomorrow's problems we face."